Still Possibly a Banana Republic: Take 2

Traders will be dealing with déjà vu all over again over a possible government shutdown and a string of earnings. On the economic front, we have Manufacturing PMI, the Unemployment Rate, Non-Farm Payrolls and Average Hourly Earnings.

Non-Farm Payrolls & Unemployment Rate: After the disappointing US GDP figure last week, along with radio and Twitter silence from the White House, we have the release of Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for April this Friday (5/5). Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, the markets will likely go lower along with the US Dollar. If the number is strong, Sean Spicer will likely say this number is real unlike Obama’s White House fake numbers while a weak number was made up in the GDP centers.

Earnings Season: After the largest week for earnings in 10 years, 1Q earnings season rolls on with another 127 S&P 500 companies and 3 Dow components expected to report this week. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, with approx. 58% of S&P 500 companies reporting 1st quarter earnings, 76% reported revenue above expectations while 65% have reported earnings above expectations. Both of these figures are above the last 4 quarters averages. These figures are also higher than what we witnessed with earnings last quarter.

Déjà vu All Over Again: Last Friday, (4/28) the House and Senate voted to approve a 1 week spending bill to avoid a government shutdown. So the government will now continue to function/dysfunction until this Friday (5/5). Like last week, here are the scenarios that could play out in the markets. The closer we get to the deadline without a deal, the markets may pull back as volatility and the VIX would rise. We would also see a move into safe havens such as Gold, Treasury’s and the Japanese Yen. If they just pass a budget that gets them through the end of the fiscal year, which ends Sept 30, or another extension for a few days to hammer out details, expect the status quo. If we actually do shut down with a Republican majority House, Senate and Republican President, start working on the banana republic flag design.

Another Fed Statement: On Wednesday (5/3), the Fed releases their latest statement. At this juncture, markets have not been paying any attention to this statement, since their attention has been on taxes, a possible government shutdown, North Korea, Healthcare, our pets getting killed on United flights (R.I.P. Simon), etc. The markets do not expect any change in monetary policy. However, they will be looking for any hints as to when the Fed may start to unwind their massive balance sheet. Any announcement could see the US Dollar strengthen against a basket of currencies, weakening oil even further (since priced in US dollars).

Treasury Secretary (Street Fighter) Mnuchin: Due to speak at the Milken Conference is Treasury Secretary Mnuchin. After announcing President Trump’s tax plan, investors will be listening to Mnuchin for additional details as to who will benefit with the President’s tax proposal. Traders will also be listening to additional hints as to deductions and how they may affect personal finances.

Oil: Last week saw West Texas Crude oil fall below $50, a 4-week low. Contributing to the drop was a strengthening of the US Dollar after the ECB left interest rates at 0% and a surprise build in oil inventories. Drawing it lower partially are technicals as crude fell below its 200 day moving average, which had acted as a strong support level. Investors will watch to see if this downward trend in price continues, which will continue to send energy companies lower. We will also be listening to the latest out of OPEC as they meet at the end of May to discuss furthering their production cut. Algos will start to go wild on any headline from a member of OPEC which could positively or negatively impact the price of oil.

Chinese Data: This week, China will be releasing Manufacturing PMI and Caixin Service PMI. Investors will monitor the data and the Yuan’s reaction as weak data will put downward pressure on the currency, with the potential for markets to fall globally.

A Few Bank Holidays this Week: Markets in Europe will be closed on Monday (5/1) for May Day celebrations or Labor Day in certain countries. Japanese Banks and markets will be closed Wednesday (5/3) for Children’s Day. Another holiday Japan gives off to workers which we should also be doing. Don’t forget to raise your carp-shaped koinobori flags, as is tradition.

Today’s blog is brought to by the Long Island Railroad. “You don’t think I can mess up your commute 20 consecutive days, hold my beer.” The LIRR thanked its customers again by delaying their commute home for the 20th consecutive day last week. The LIRR in a press release said, “If people are dumb enough to continue riding the railroad, we will continue to spend their exorbitant monthly ticket to pay for our conductor’s $200K salary and pension.” Not a bad gig when the toughest part of your job is punching the occasional ticket and telling people you are on the correct train.